Bernanke: Economy is Washington’s problem

posted at 12:50 pm on August 26, 2011 by Ed Morrissey

Wall Street wanted to hear Ben Bernanke talk about cheap money today. Instead, the Fed chair offered no hint of any more easing of monetary policy, causing a slight decline in the stock market after his speech in Jackson Hole, Wyoming. Bernanke told the audience that Washington needs to start finding ways to create jobs fast in order to repair the economy:

Bernanke’s speech at a central banking conference appeared to disappoint some market participants who had hoped the Fed chairman would make a clear case for a further easing of monetary policy. The U.S. dollar strengthened and stocks added to losses on his comments.

“The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “The economic healing will take a while, and there may be setbacks along the way,” he added. “However … the healing process should not leave major scars.”

While expressing long-term optimism, Bernanke made plain the central bank found recent developments troubling, and he said the Fed would expand its September policy meeting to two days from one to discuss its options.

However, Bernanke also stressed that most of the burden for ensuring a solid foundation for long-term growth lay at the feet of the White House and U.S. Congress.

“Financial stress has been and continues to be a significant drag on the recovery, both here and abroad,” he said. “It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth.”

Bernanke didn’t exactly shut the door on future easing, either. Adding an extra day to the September deliberations signals a willingness to look at the issue. But with the core PCE price index going up 2.2% (annualized) and overall PCE price index increasing over 3% in the last quarter, deflation isn’t a risk in the short run. Inflation might be if Bernanke sets sail on a QE3.

Besides, Bernanke tried easing with QE2 and it had no effect on growth. It didn’t force capital off the sidelines, as some had suggested, by attacking its value through inflation. The risks for investment have not been made any clearer, and indeed look even more muddled as Obama and Democrats threaten to renege on the tax-rate deal they struck in December through the so-called “super committee” deliberations. Bernanke is absolutely correct that the problem with the economy lies with Washington’s handling of it.

We need to create jobs — lots of jobs, and fast. That would mean reducing regulatory expansion in a meaningful way, especially on energy production. The Obama administration insists that it will reduce needless and costly regulation, but Speaker John Boehner wrote an open letter to the White House today insisting that their own public data shows regulatory burdens will increase, not decrease:

House Speaker John Boehner (R-OH) today sent a letter to President Obama noting the scheduled increase in regulatory action by the Administration and asking that the White House provide Congress with a list of all of the regulatory actions it plans that would have an economic impact of $1 billion or more. The Speaker formally requested that the White House provide this information before Congress returns this fall, when the House is scheduled to resume work on legislation promised in the Pledge to America that would require congressional approval for any new regulatory action that is projected to have a significant impact on job creation.

Boehner sent a similar request for information to the president last August, when he was serving as House Republican leader. The requested information was never provided. …

The Obama Administration’s newly-updated regulatory agenda is posted online at http://www.reginfo.gov/public/do/eAgendaMain. Right on the front page is a graph showing that 4,257 new regulatory actions are in the works. To dig a bit deeper on that number, one must go to the “Advanced Search” feature on the site, located at http://www.reginfo.gov/public/do/eAgendaAdvancedSearch#. To reach that search page, go to the “search” box in the upper right corner of the main page, check the “agenda” box, and hit the search button, then click on the “Advanced Search” link that appears on the page that subsequently comes up. From there, check the option marked “Search most current publication only” and hit “continue.” On the next page that comes up, select the option “All,” and hit “continue” again. On the page that comes up, visitors are given the ability to break down the data based on a variety of different criteria. To obtain a list of the regulatory actions currently planned by the Administration that will have an economic impact of $100 million or more, go to the “Priority” options about halfway down the page on the left, and check the box marked “Economically Significant.” Hit the search button at the bottom of the page.

Bernanke is wrong about one point: Washington isn’t the solution — it’s the problem. When the Obama administration and its reckless expansion of the regulatory regimes it uses to impose its agenda finally retreats, investors will fill the vacuum, and we will create the jobs Bernanke rightly says will boost the economy. Until that happens, we will continue with the stagnation, staggering costs, and lost opportunities that have been the hallmark of Obamanomics since Porkulus.

Update: King Banaian has further analysis of the speech, calling it an “ominous” precursor to more stimulus.

Blowback

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Cheap money? The Fed has kept interest rates at or near zero for years now. If money gets any cheaper, we’ll have to pay the banks to hold our money for us.

AZCoyote on August 26, 2011 at 12:55 PM

At which point it will be more cost-effective to take and keep one’s money in a mattress or buried in the back yard rather than in a bank [where the government can get at it]. I remember when I was growing up all the ridicule that people who did those sorts of things incurred. Now it turns out that they were actually right, they were just a few decades ahead of the curve. When one has a savings account that pays 0.1% (yep, less than 1%) annual return, one needs to weigh the risks of keeping money in an institution vs. where one has ready access to it.

“The growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “The economic healing will take a while, and there may be setbacks along the way,” he added. “However … the healing process should not leave major scars.”

Anyone read Douglas Adams? This reminds me of the bit where the messenger from the forest goes to demand an explanation, gets one, finds it completely reasonable, goes home, and can’t remember it.

In addition, there is no such thing as capital “on the sidelines.” This is just the old Keynesian canard of “hoarding cash.” Under capitalism, this used to be known as saving.
…

Emperor Norton on August 26, 2011 at 1:09 PM

While I agree with the rest of your post, I disagree with your statement above. Although the Keynesians may deride the sidelining of capital as “hoarding cash”, it is a real phenomenon. The regulatory environment and uncertainty right now have people who do have cash to invest staying on the sidelines because they don’t want to jeopardize that capital by investing it in anything that might lose value or go under as a result of the massive regulations, Obamacare fees, and other nonsense King Barry may visit upon us. This does have a real impact upon economic growth and prosperity as there are no new jobs created since businesses aren’t expanding, industry isn’t building new plants or using capital for anything other than self-preservation.

It’s just good business sense. If you have cash in this uncertain environment, you don’t put it in a more risky proposition than just having that cash. That’s simple good management and the market at work, albeit a market directly influenced by the government’s actions.

Read the Bernanke Doctrine some time, and be afraid. He buys into FDR’s economic philosophies of printing your way out of a recession. Scary stuff. Not surprised this guy went from academia straight into the fed. Business would have chewed him up and spit him out.

Nope, not Moochie, she is staying in Marxist Vineyard at least another day. Is the royal marriage in trouble?

slickwillie2001

Yesterday on another thread, I predicted that when they leave the White House in 2013, O’Bambi will pursue his sexual preferences elsewhere and Michelle will take the kids and move back to the Rezko house. They will have a Clinton Marriage – not divorced or separated but living apart to pursue their individual “careers”.

Bernanke is wrong about one point: Washington isn’t the solution — it’s the problem. When the Obama administration and its reckless expansion of the regulatory regimes it uses to impose its agenda finally retreats, investors will fill the vacuum, and we will create the jobs Bernanke rightly says will boost the economy. Until that happens, we will continue with the stagnation, staggering costs, and lost opportunities that have been the hallmark of Obamanomics since

All we need to know is, this is all being done with intent. Obama knows he’s got his foot on the throat of the economy, he knows he should back off, but doesn’t. He’s been, and will continue to destroy this country!!!

The problem is NOT high interest rates and the problem is NOT a lack of liquidity. In fact, the problem is NOT monetary at all!
The problem is fiscal and only fiscal policy will even begin to address it.
More Fed action, of ANY type, would be a massive irrelevancy – Like bringing a crescent wrench to a brain surgery. Obama is the problem, plain and simple. Why are these fools frozen into this chronic over-thinking of the problem?